On the Price of Non-Traded Goods

Masao Oda and Robert B. Strapp
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Masao Oda: Department of Economics, Kansai University, Osaka 5648680, Japan
Robert B. Strapp: Department of Economics, University of Arkansas, Fayetteville, AR USA

Indian Economic Review, 2003, vol. 38, issue 1, 115-123

Abstract: In order to explain the price increase of non-traded goods in the face of trade and trade liberalization, this paper develops a simple model of non-traded goods with a tariff and analyzes how trade, trade policy, and changes within the non-traded sector influence the price of the non-traded goods in a unified way. It is shown that if the income effect dominates the cross substitution effects, a decline in the price of imports or a tariff reduction may increase the price of the non-traded goods. We also show that a change in the terms of trade may produce a magnified effect on the price of the non-traded good.

Keywords: Non-Traded Goods; Trade Liberalization; Income Effect; Trade Paradox (search for similar items in EconPapers)
JEL-codes: F10 (search for similar items in EconPapers)
Date: 2003
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